On Saturday, I blogged on a recent denial of a petition for rehearing en banc in Sissel v. U.S. Dept. of Health and Human Services, ___ F.3d ___, 2015 U.S. App. LEXIS _____ (D.C. Cir. 2015), here, denying petition for rehearing en banc from the earlier panel decision in Sissel v. U.S. Deparatment of Health and Human Services, 760 F.3d 1 (D.C. Cir. 2015), here. That blog entry is The Constitution's Command that Revenue Bills Originate in the House - What Does It Mean? (Federal Tax Procedure Blog 8/8/15), here.
Normally, denials of rehearing (whether panel or en banc) are summary one-liners. But the judges got stirred up in this case. All who expressed an opinion agreed that as to the bottom-line result -- the ACA did not violate the Origination Clause. But, the dissenting judges thought that the reasoning to the result was worthy of the Court's en banc consideration. I won't get back into the Origination Clause again. I did not say much about it in the prior blog and will not revisit that decision.
Something did, however, catch my eye in reading the opinions. I am (was) a history major in college. One of my favorite courses in college was U.S. Constitutional History, taught by Dr. George C. Rogers at the University of South Carolina. One of the sources we used in the course was Max Farrand's The Records of the Federal Convention of 1787. These are described here as:
One of the great scholarly works of the early twentieth century was Max Farrand's The Records of the Federal Convention of 1787. Published in 1911, Farrand's work gathered the documentary records of the Constitutional Convention into four volumes--three of which are included in this online collection--containing the materials necessary to study the workings of the Constitutional Convention. According to Farrand's introduction, at the close of the convention, the secretary, William Jackson, delivered all the materials to the president of the convention, George Washington, who turned these papers over to the Department of State in 1796. In 1818, Congress ordered that the records be printed. which was done under the supervision of the Secretary of State John Q. Adams, in 1819.
Farrand's Records remains the single best source for discussions of the Constitutional Convention. The notes taken at that time by James Madison, and later revised by him, form the largest single block of material other than the official proceedings. The three volumes also includes notes and letters by many other participants, as well as the various constitutional plans proposed during the convention.Farrand's collection of the records of the Constitutional Convention are important source materials. Hence, it is frequently cited in cases and scholarly discussions of the convention and the meaning of the Constitution coming out of the Convention.
So, in reading the opinions on the denial of the petition for rehearing in Sissel, I was not surprised to see that both sides referred to Farrand's Records. And, beyond that, one part of the discussion caught my attention because it sheds light on current events. In discussing the trajectory of the Origination Clause, the majority opinion notes that the consideration of the Origination Clause was not extensive, but certain key considerations of the Clause "occurred in its [the Convention's] closing weeks, between mid-August and early September 1787." One representative at the Convention proposed that the Origination Clause provide: "All bills for raising or appropriating money . . . shall originate in the House of Representatives, and shall not be altered or amended by the Senate." The majority opinion then discusses the issue this language raised (bold face supplied by JAT):
Two days later, a coalition of delegates came together to strike the Clause from the draft of the Constitution, and succeeded in doing so by a vote of 7-4. 2 Farrand's Records at 210-11 (Aug. 7, 1787); id. at 214 (Aug. 8, 1787). The Clause's opponents saw it as a needless landmine, one that could seriously weaken the new national government by investing too much power in what they viewed as the less independent, less expert, and less responsible of the two chambers of Congress, while generating pointless gridlock and mortally weakening the Senate. See, e.g., id. at 224 (Aug. 8, 1787) (summarizing objections of Pinkney, Mercer, and Madison, the last of whom "was for striking it out: considering it as of no advantage to the large States as fettering the Govt. and as a source of injurious altercations between the two Houses"); id. at 274-80 (Aug. 13, 1787) (summarizing additional objections of Wilson, Morris, Madison, Carrol, Rutledge, and McHenry to a similar version of the Origination Clause five days later).So, what's the point? Focus on the bold-face. What struck me was how this phenomenon played out in the brouhaha over the IRS's handling of applications for Section 501(c)(4) tax exempt organization status. One author of a prominent tax blog, the Tax Prof Blog, pronounced early on that it was an IRS Scandal and started daily blog entries titled "The IRS Scandal, Day 1" and continuing daily thereafter until the blog entry for today is The IRS Scandal, Day 823. In the daily blog entries, the professor aggregates material from around the web, mostly from right wingers who hate President Obama and are happy to whip the Scandal notion daily pronounced in the title of the blog entries. (The comments on the blog entries are generally by Obama haters as well.)
Was there a scandal? If you read the Tax Prof Blog entries,following the links (overwhelmingly right-wing), and the comments (same), you might think so. If you pay attention to the Republican rantings in the House of Representatives, you might think so.
But, if you pay attention to the evidence, there was none of scandal. More importantly, just last week, the Senate Finance Committee (led by Senators from the Republican majority) issued its bipartisan report. The is titled The Internal Revenue Service's Processing of 501(c)(3) and 501(c)(4) Applications for Tax-exempt Status Submitted By "Political Advocacy" Organizations from 2010-2013 (S. Rept. 114-119 August 2015), which may be downloaded here. The report as presented is a bipartisan report with agreed findings of the facts. Each of the parties' leaders do make separate statements to put their spins on the facts, but the core facts are agreed upon in the bipartisan report. The core facts distilled for present purposes are:
- Although not stated in this express language, the fact is inescapable -- there was no scandal, at least in the sense of political scandal.
- At worst, there was mismanagement even perhaps gross mismanagement (although I am not sure that the actual facts support the characterization gross mismanagement).
- There was no political directions or political involvement by the White House or political appointees (the IRS has only two) in whatever level of mismanagement occurred. It was simply mismanagement.
Upon hearing reports of Becket's actions, Henry is said to have uttered words that were interpreted by his men as wishing Becket killed. The king's exact words are in doubt and several versions have been reported. The most commonly quoted, as handed down by oral tradition, is "Who will rid me of this troublesome priest?", but according to historian Simon Schama this is incorrect: he accepts the account of the contemporary biographer Edward Grim, writing in Latin, who gives us "What miserable drones and traitors have I nourished and brought up in my household, who let their lord be treated with such shameful contempt by a low-born cleric?" Many variations have found their way into popular culture.
Whatever Henry said, it was interpreted as a royal command, and four knights, Reginald fitzUrse, Hugh de Morville, William de Tracy, and Richard le Breton,set out to confront the Archbishop of Canterbury.
Regardless of whether an explicit directive was given, the President gave the order to target conservative groups at every opportunity – the State of the Union, in press conferences, and in TV interviews. He didn’t send a “smoking gun” email because he did not need to – he gave the order for all to hear. And his political allies at the IRS followed those orders.
The report clearly shows that conservative groups were singled out because of their political beliefs, and gross mismanagement at the IRS allowed this practice to continue for years.
We know that the IRS systemically selected Tea Party and other conservative organizations for heightened scrutiny, in a manner wholly different from how the IRS processed applications submitted by left-leaning and nonpartisan organizations.
And,Hatch's last statement above is not quite accurate. Hatch does not know that the IRS disproportionately selected conservative organizations. The facts indicate that the IRS selected liberal organizations under a similar methodology. The IRS selected more conservative organizations because more conservative organizations were applying for exempt status. Thus, for example, if twice as many conservative organizations were applying, one might expect more conservative organizations would be selected for further look.
Addendum on Legal Background:
From the Senate Finance Committee Report, pp. 32-33, footnotes omitted
D. LEGAL BACKGROUND OF 501(C)(3) AND 501(C)(4) ORGANIZATIONS
The Committee’s investigation chiefly concerns organizations applying for tax-exempt status under sections 501(c)(3) and 501(c)(4) of the Internal Revenue Code.
An organization may qualify for exemption under section 501(c)(3) of the Internal Revenue Code if it is organized and operated for religious, charitable, educational and certain other specified purposes. These organizations may not directly or indirectly “participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.” This prohibition is absolute. Thus, if a 501(c)(3) organization engages in any amount of prohibited campaign intervention, the IRS may revoke its tax-exempt status and impose an excise tax.
Section 501(c)(4) provides tax-exempt status for organizations operated “exclusively for the promotion of social welfare.” In 1959, the Treasury promulgated regulations that interpreted “operated exclusively” to mean “primarily engaged” in social welfare activities. As a result, the IRS considers an organization to qualify for tax-exemption under section 501(c)(4) if its primary activity is “promoting in some way the common good and general welfare of the people of the community.” The regulations provide that political campaign intervention is not a social welfare activity, but a group recognized as tax-exempt under section 501(c)(4) may engage in unlimited issue advocacy related to its exempt purpose and some political campaign intervention, as long as the group is primarily engaged in social welfare.
Section 501(c)(3) organizations must apply to the IRS to be recognized for tax-exempt status. Although the tax law allows section 501(c)(4) organizations to operate as tax-exempt without applying for IRS recognition of their status, most organizations apply for an IRS determination. Another important distinction is that donors to 501(c)(3) organizations may generally take a tax deduction for the amount of their donation, while donations to 501(c)(4) organizations are not tax-deductible.
Generally, the tax laws do not require 501(c)(3) public charities or 501(c)(4) organizations to publicly disclose the identity of their donors. By contrast, the identity of donors to section 527 political organizations are made public, as well as periodic reports of contributions and expenditures filed by such organizations.So, generally, 501(c)(3) organizations may not engage in political campaigns - absolute prohibition. 501(c)(4) organizations -- social welfare organizations -- must be, by statute, operated exclusively for social welfare activities. Political campaigns or activity is not social welfare, but by interpretation those organizations can do some of it so long as the organization is "primarily engaged in social welfare." Just to drill back to the statute (every now and again, we should look at the statute), it says:
(4)My inference is that an organization engaged primarily in political activity would not qualify under 501(c)(4). And even one that wasz significantly engaged in political activity might be worth a look to see if they crossed the line. The IRS presumably must police the section.
(A)Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare, or local associations of employees, the membership of which is limited to the employees of a designated person or persons in a particular municipality, and the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes.
(B)Subparagraph (A) shall not apply to an entity unless no part of the net earnings of such entity inures to the benefit of any private shareholder or individual.
So, the brouhaha arose, in the words of the Report, because of the IRS's treatment of "Tea Party and other political activity organizations" which were seeking 501(c)(4) status. One would think, for example, that a group wanting the benefit of 501(c)(4) status would not be named "The Tea Party Political Advocacy Organization." The IRS tried at the inception to infer from the names of the organizations -- both conservative and liberal -- whether the organization so-named might be worth a further look as to whether they had too much political activity. On the basis of inferences from the names of the organizations, the IRS EO group set aside those which the names suggested the possibility of perhaps crossing the line. The EO group chose both conservative and liberal organizations, but since there were so many more conservative than liberal, more conservative organizations hit the radar screen.